U.S. crude oil futures experienced a sharp decline of over 3% on Monday, wiping out all gains made since the start of the Israel-Hamas war on October 7.

The ground incursion carried out by Israel into Gaza has not been as extensive as some investors anticipated, causing the risk premium that surged when the invasion began to dissipate.

Investors are also closely watching the Federal Reserve meeting scheduled for Wednesday, as well as earnings reports from companies like Apple that could offer valuable insight into the possibility of an economic slowdown.

Front-month Nymex crude (CL1:COM) for December delivery closed down 3.8% at $82.31/bbl, marking its lowest settlement value since October 5. Meanwhile, front-month December Brent crude (CO1:COM) ended the day down 3.3% at $87.45/bbl, its lowest close since October 12.

Notable exchange-traded funds (ETFs) affected by these developments include (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), and (USOI).

The energy sector (XLE), one of the 11 S&P industry sectors, recorded the smallest gain at 0.3%.

Israel’s cautious advance on Gaza has yet to trigger heightened retaliation or necessitate an increased risk premium for oil, according to Mizuho analyst Robert Yawger. However, concerns persist as a strong response from Hezbollah could elicit an even stronger reaction from Israel and potentially bring Iran and the U.S. closer to direct military confrontation, said Yawger.

UBS analysts commented that if Iran’s involvement leads to a decline in the country’s oil exports, an already constrained market could face additional pressure. They estimated that a reduction of 500,000 barrels per day could push Brent crude prices between $100 and $110.